Compensation & Benefits: Laws & Regulations

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  • 0:00 Compensation and Benefits
  • 0:26 Compensation
  • 1:42 Required Benefits
  • 4:08 Other Benefits
  • 4:51 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

Compensation and benefits are two of the hottest topics in the job market, but do you know what they are? In this lesson, you'll learn what compensation and benefits are and explore laws that affect them both.

Compensation and Benefits

Have you ever been on a job interview? If so, what was one of the most important things that you wanted to know? Was it the responsibility of the job? Was it the hours? Or was it how much you were going to get paid and what kind of perks were offered? Usually, the most sought after information is the compensation and benefits package. What exactly are compensation and benefits?


Compensation is the amount of money that an employee receives from an employer for doing his or her job. The most important thing to realize when discussing compensation is that there are rules and regulations that govern how employers handle it.

The prevailing law, titled the Fair Labor Standards Act, or FLSA for short, sets the minimum dollar amount that an employer can pay an employee. It also establishes the maximum number of hours an employee must work before they receive overtime pay, which is set at 1.5 times the employee's regular rate of pay. It's important to note here that an exempt or salaried employee, one who is not paid hourly wages but is paid a set amount each pay period, is exempt to the minimum wage provision of the FLSA. Second, the minimum wage requirement of the FLSA is not the minimum wage that is paid in all states. Many states set a higher minimum wage requirement. An employer must pay whichever wage is higher in the state in which they operate.

The second law that dictates compensation is the Equal Pay Act of 1963. This law requires that employers do not discriminate against the sexes. They must not pay men higher wages than women for performing the exact same job or vice versa.

Required Benefits

Benefits are non-cash compensation that an employee receives from his or her employer. Benefits come in two forms: those required by law and those not required by law. There are six benefits that an employee must receive from an employer. The first is workers compensation insurance. Employers must carry this insurance, which provides financial and medical benefits to employees injured on the job.

Next is unemployment insurance, which offers individuals who lose their job through no fault of their own a specific dollar amount for a defined amount of time after the job loss. The dollar amount and the amount of time that it's paid are determined using a formula based on hours worked over a certain amount of time, and amount of money made during that time period. Unemployment insurance is different for each state. Therefore, the amount that employers pay for the insurance differs by state. There's no cost to the employee for this benefit.

Employees must also receive Social Security and Medicare benefits. These are funded by taxes, which both the employer and the employee must pay. As of 2017, the rate that both the employer and employee must pay into Social Security is 6.2% of the employee's earned wages, while Medicare is 1.45%. The employee's taxes are withheld from each paycheck and submitted to the IRS by the employer along with the employer's matching portion of the taxes.

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